Overview:
The S&P 500 index is probably the most commonly referenced U.S. equity
benchmark. This diverse index comprises over 70% of the total market cap of all
stocks traded in the U.S. First developed in 1923, the index initially contained
233 stocks. However, in 1957 it was modified to include a diversified basket of
500 common stocks.
Composition:
The S&P 500 is not comprised of simply the 500 largest U.S. stocks. Instead,
it consists primarily of leading companies from a wide variety of different
economic sectors. The index started with 23 identified sectors, but today
contains over 100 unique sectors. Most analysts choose to use the S&P as
their preferred benchmark index thanks to its diversified sector coverage as
well as its market value weighting. Because the index is weighted by market cap,
the largest firms have the greatest impact on the S&P's value.
The table below lists the current top ten holdings in the
S&P 500 as well as the top ten sectors represented in the index (data as of
July 2004):
| Company |
Symbol |
%
of Index |
| General Electric |
GE |
3.2%
|
| Microsoft |
MSFT |
2.9% |
| ExxonMobil |
XOM |
2.7% |
| Pfizer |
PFE |
2.5% |
| Citigroup |
C |
2.3% |
| Wal-Mart Stores |
WMT |
2.1% |
| American Intl. Group |
AIG |
1.8% |
| Intel |
INTC |
1.7% |
| Bank of America |
BAC |
1.6% |
| Johnson & Johnson |
JNJ |
1.6% |
|
| Sector |
% of Index
|
| Financial Services |
20.3% |
| Healthcare |
13.4% |
| Industrial Materials |
12.2% |
| Hardware |
10.8% |
| Consumer Goods |
9.7% |
| Consumer Services |
8.8% |
| Energy |
6.5% |
| Software |
4.5% |
| Business Services |
3.9% |
| Media |
3.9% |
|
Positives:
This index is probably the single best way to track the overall performance of
our nation's largest and most dominant companies. Most investors are familiar
with the S&P 500 and the index is extremely liquid.
Drawbacks:
Because they are unlikely to qualify due to the index's high market cap
requirements, the S&P 500 does not provide investors with exposure to some
of the smaller, yet in many cases faster growing, companies on the market. In
addition, because it is market value weighted, the largest companies in the
index have a disproportionate amount of influence on the S&P 500's results.
How can I trade/invest in this index?
A number of different mutual funds track the performance of the S&P 500.
However, the most convenient and cost-effective way to trade this index is to
purchase the S&P SPDRs (symbol SPY). This exchange-traded fund, which is
commonly referred to as "spyders" or "spiders," tracks the
performance of the S&P 500, sports an extremely low 0.12% expense ratio and
can easily be bought or sold on the open market just like a regular common
stock. For more information on this ETF, please consult our ETF
Profiles page.
Additional Information:
Standard & Poor’s
AMEX (American Stock Exchange) SPDRs
Income Security
of the Month
Our "Income Security of the Month" for May 2008 invests in
a fast-growing overseas market that doesn't get much exposure in the
mainstream financial press. And although it typically makes enormous
annual dividend payments -- it has paid an average dividend of 24.5%
per year over the past five years -- this fund is perhaps most
appealing for its total return potential. Specifically, the fund has
delivered total returns of +297.3% since 2003, and
it ranks in the top 10% of its category over the past decade.
|
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